2022 is the year King Dollar (USD) held sway in the foreign exchange market. So great is the demand for USD that the value of the US Dollar surged against most other currencies in the world. A quick glance at the JP Morgan weighted Dollar Index tells you all about this trend – up nearly 15 points in the past 12 months.
How has the Pound performed against the Dollar recently?
Remember, the value of the USD is like a supertanker. It takes a gargantuan amount of buying to move it just a few points. To move like it did over the past five quarters signalled a major shift in the world economy.
Against the surging Dollar, Sterling has done notably badly. Partly because of the self-inflicted damage caused by the ‘mini budget’. The chart below shows GBPUSD slumped to its lowest level in September 2022, to 1.035. This levels dates back to 1985.
Is it a good time to buy US Dollars with pounds?
If you know you will need Dollars in the next few months, the current level may be a good level to buy. Sterling’s rebound was very sharp and prices are now steadying around the 1.200 region.
Will the pound get stronger against the USD in 2023?
In the financial market, anything could happen in 2023. The overbought dollar corrects; or overbought dollar becomes even more overbought. Either way, I suspect not many traders will have a high conviction on any scenario. This is due to the fluidity of the macro outlook. In particular:
- US rate hikes – How aggressive will the Fed monetary policy be next year? Increasingly investors are betting on a softening of the rate hikes, perhaps to a slower pace (50bps). Note that the US yield curve is partly inverted. This means that a recession is in the pipeline in 2023. In fact, the global yield curve is now inverted.
- UK rate hikes – Inflation in the country remains sticky. So the Bank of England needs to raise the policy rate – currently at 3% – in 2023 to combat this (see chart below). How high will the base rate go? Nobody knows. Complicating this policy is the weakening economy. Can the central bank tighten aggressively into a rapidly slowing economy?
As you can see, there are far more questions about the economy than answers. Uncertainty is stalking the market.
Against this backdrop, the recent rally in GBPUSD may struggle to extend further. There are plenty of overhead resistance levels (1.250, 1.280, 1.300) And putting out forecasts 12 months in advance is practically impossible. My tentative position is that GBPUSD will stay at around 1.200 for the time being – barring any major ‘Black Swan’ events.
Source: Bank of England
What is the GBPUSD forecast in weeks, months, and years?
In light of the above discussion, I’m not surprised to see the forecast for GBPUSD is near the current level for the next few weeks. For one, we are moving into the yearend, where trading activities are slowly being curtailed.
And then there is the major Fed meeting later this month (14 December). This last monetary meeting of the year will determine the outlook for the first quarter of 2023. Will the Fed really lower the hike to 50bps, or will it stay at 75bps? More importantly, will Fed reassure the market that it will try not to ‘over tighten‘?
Once this event is over, perhaps investor will update their GBPUSD forecast. For now, GBPUSD looks like this – with a gentle dip back to 1.200 over time.
Where is the best place for buying large amounts of US Dollars from Pounds
There are two different ways people buy Euros from Pounds
- Through a currency broker – when transferring money abroad
- Through a forex broker – when speculating on the price of currency
You can use this comparison table of currency brokers to see how many currencies they offer, what the minimum USD transfer is and if they offer forwards and currency options as well as when they were established. You can either visit each currency broker individually or use our currency quote comparison tool to request multiple exchange rates.
Or, if you are more interested in trading GBPUSD you can compare forex brokers here.